Question Tag: Capital Gains

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  • 10 Marks

PT – Nov 2024 – L2 – Q3b – Capital Gains Tax and Asset Realization

Tax computation on asset realization and understanding taxable capital assets.

b) Kwamoso LTD sold the following assets to Mr. Badu on 18 May, 2023 for GH¢450,000 to settle a tax liability. Kwamoso LTD is not listed on the Ghana Stock Exchange.

Below are details of the assets:

Name of Asset Cost (GH¢) Net Book Value (GH¢) Market Value (18 May 2023) (GH¢) Market Value (31 Dec 2023) (GH¢)
Truck vehicle 750,000 480,000 320,000 350,000
Generator 60,000 29,400 8,400 8,000
Laptops 48,000 17,200 8,000 7,200

Required:

i) Compute the consideration received in respect of each asset realised.

ii) What constitutes capital assets in the context of capital gains tax in Ghana?

iii) Under what circumstance would there be a loss in the realization of a liability?

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  • 20 Marks

AT – Nov 2016 – L3 – SB – Q3 – Capital Gains Tax

Compute chargeable gains, capital gains tax, and new cost of remaining plant and machinery after a sale.

since 2015. It has been a leading name in the production of a popular brand of household vegetable oil known as “Abop,” which is in high demand.

Given the fact that the company is doing very well, it secured funds from its bankers and bought additional Plant and Machinery in excess of its immediate needs on June 1, 2013, for ₦24,600,000.

The Finance Director convinced the Board to dispose of part of the plant and machinery to boost the company’s working capital. Consequently, on December 31, 2015, the company sold part of the Plant and Machinery for ₦37,925,000 and spent ₦5,125,000 as expenses incidental to the sale. The market value of the remaining Plant and Machinery was ₦15,375,000 as of December 31, 2015.

However, the issue of the tax implications of these transactions is worrisome to the Managing Director, who is visibly disturbed that the Federal Inland Revenue Service (FIRS) might come after the company.

You are required to:
a. State any FOUR Chargeable Assets. (2 Marks)
b. State any FOUR conditions for granting Roll-Over Relief. (8 Marks)
c. Compute the Chargeable Gains on the asset sold. (4 Marks)
d. Compute the Capital Gains Tax. (2 Marks)
e. Compute the new cost of the remaining asset. (4 Marks)

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  • 20 Marks

ATAX – May 2021 – L3 – Q5 – Capital Gains Tax (CGT)

Computation of capital gains tax, reliefs, and tax implications on compensation and reorganization transactions.

DD Nigeria Limited, a private limited liability company, was incorporated in March 2010. The company produces highly successful spring water. The Board of Directors of the company comprises a non-executive Chairman, his wife as the Managing Director, and the Chairman’s childhood friend. For the day-to-day running of the business, the Managing Director is being assisted by the Production Manager, Sales/Marketing Manager, Administrative Officer, and Accounting Officer (a diploma graduate).

The company has a track record of steady growth in profitability and market share. In a bid to cut down its cost of raw materials, particularly polythene, the Board at its recent meeting decided to acquire a polythene company in the neighborhood that is witnessing dwindling fortunes due to insufficient funds to finance its working capital. The Board has also lost confidence in the Accounting Officer as his poor knowledge in tax-related matters was brought to the fore during a recent visit to the company by officials of the Federal Inland Revenue Service.

The Managing Director has approached your firm of tax consultants to help provide professional advice on tax matters in respect of some transactions and activities that occurred in the last one year.

Records of the following transactions were made available to you:

(i) The company purchased plant and machinery at a cost of ₦5,000,000 on April 1, 2019. Plant was later disposed on September 15, 2019, for ₦3,500,000. The undisposed machinery was valued at ₦4,300,000. Incidental expenses incurred on disposal were ₦250,000.

(ii) The company sold an acre of land, which was acquired on May 22, 2018, at a cost of ₦6,750,000 for ₦12,500,000 on October 19, 2018. In the following month, the company bought another land, which was to be used for the purpose of the business, for ₦15,000,000 to replace the one sold. It was, however, subsequently disposed of for ₦18,000,000 in June 2019.

(iii) Part of the industrial building (where the production unit is located) was damaged in October 2020 during a protest by some youths in the area. The company, in November 2020, received ₦2,200,000 as compensation under a policy of insurance. The company has the intention of utilizing the fund for the acquisition of another building.

Required:

As the tax consultants to DD Nigeria Limited, draft a report to the Managing Director of the company explaining and providing computations (where necessary) on the:

a. Capital gains tax liability for the relevant tax year in respect to transaction (i). (5 Marks)
b. Relief available (if any) and tax liability due in respect to transaction (ii). (9 Marks)
c. Tax implications on the compensation under the policy of insurance received on the damaged industrial building. (2 Marks)
d. Treatment of gains arising from business reorganization in line with the provision of Section 49, Finance Act 2019, which amended Section 32, Capital Gains Tax Act Cap C1 LFN 2014. (4 Marks)

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  • 20 Marks

ATAX – Nov 2016 – L3 – Q3 – Capital Gains Tax (CGT)

Computes chargeable gains, capital gains tax, and implications of disposing part of a company’s assets.

Obioma and Sons Limited, a company based in Emene – Enugu, has been producing vegetable oil since 2015. It has been a leading name in the production of a popular brand of household vegetable oil known as “Abop,” which is in high demand.

Given the fact that the company is doing very well, it secured funds from its bankers and bought additional Plant and Machinery in excess of its immediate needs on June 1, 2013 for N24,600,000. The Finance Director convinced the Board to dispose part of the plant and machinery to boost the company’s working capital. Consequently, on December 31, 2015, the company sold part of the Plant and Machinery for N37,925,000 and spent N5,125,000 as expenses incidental to the sale. The market value of the remaining Plant and Machinery was N15,375,000 as at December 31, 2015.

However, the issue of the tax implications of these transactions is worrisome to the Managing Director, who is visibly disturbed that the Federal Inland Revenue Service (FIRS) might come after the company.

As the tax consultant to the company, you are required to:

a) State any FOUR Chargeable Assets. (2 Marks)
b) State any FOUR conditions for granting Roll-Over Relief. (8 Marks)
c) Compute the Chargeable Gains on the asset sold. (4 Marks)
d) Compute the Capital Gains Tax. (2 Marks)
e) Compute the new cost of the remaining asset. (4 Marks)

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  • 15 Marks

FM – Nov 2021 – L3 – Q6 – Portfolio Management

Analyze the risk profile of Bettaluck plc's short-term equity portfolio and assess investment adjustments based on market returns and financial strategy.

Bettaluck plc is experiencing a substantial net cash inflow, which has been temporarily invested in a short-term equity portfolio. This portfolio consists of investments in four Nigerian listed companies. The funds are intended to meet tax obligations, dividend payments, and future capital expenditures in several months.

Portfolio Details:

Required:

a. Based on the data provided, calculate the risk (i.e., Beta) of Bettaluck’s short-term investment portfolio relative to the market. (4 Marks)

b. Recommend whether the composition of Bettaluck’s short-term investment portfolio should be adjusted. Provide reasons for your recommendation, including relevant calculations. (6 Marks)

c. Discuss the factors a financial manager should consider when investing in marketable securities. (5 Marks)

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  • 20 Marks

AT – Nov 2022 – L3 – Q3 – Capital Gains Tax

Calculate capital gains and tax payable on asset disposals, analyze due dates for tax return and payment, and evaluate provisions for compensation.

Microfin Garment Nigeria Plc has been in business for many years as a textile manufacturer. At a recent annual general meeting, shareholders noted a decline in profitability, market share price, and dividends. They observed a particular product line was underperforming due to competition, and a reorganization was agreed upon to be completed within quarter 3 of the new financial year.

The Board of Directors complied with the shareholders’ resolution, deciding to:

  1. Relieve the General Manager (Mr. Chukwu Bala) and Operations Manager (Mr. Ojo Ekaite) of their jobs due to the underperforming segment. They were compensated N12 million and N7.5 million, respectively.
  2. Redeploy production and administrative staff to other branches.
  3. Dispose of qualifying property, plant, and equipment with details as follows:
    Asset Cost (N’000) Tax Written Down Value (N’000) Sales Proceeds (N’000)
    Industrial building 85,000 36,125 123,900
    Plant and machinery 128,500 16,062.5 80,000 and 60,000
    Factory equipment 150,600 37,650 160,000

Additional Notes:

  • Industrial building: Acquired in 2014, with renovation costs of N288,000 and incidental expenses of N150,000 prior to disposal in February 2021. N100.2 million of the proceeds were used in July 2021 to acquire a new building for the head office.
  • Plant and machinery: Acquired in 2017, partially sold in April 2021 for N80 million. The undisposed part had a market value of N65.3 million and was sold in August 2021 for N60 million, with N30,000 in incidental expenses.
  • Factory equipment: Acquired in 2018, sold in September 2021 at a market value of N162.5 million after incurring N250,000 refurbishment costs.

Required:

As the company’s Tax Consultant, you are to submit a report to the Managing Director showing:

a. The capital gains (if any) and the capital gains tax payable on:

  1. Disposal and subsequent acquisition of the industrial building (7 Marks)
  2. Disposal of plant and machinery (6 Marks)
  3. Disposal of factory equipment (3 Marks)

b. State the due dates for filing of self-assessment returns and payment of tax computed on each asset disposed of. (2 Marks)

c. Comment on the provisions of the Finance Act 2020 regarding compensation for loss of office for the two staff members disengaged by the company. (2 Marks)

(Total 20 Marks)

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  • 5 Marks

PT – April 2022 – L2 – Q5b – Taxation of Capital Gains

Explain the circumstances under which an asset is considered realised for taxation purposes.

A gain made by a person from the realisation of an asset is the total amount of consideration received for the sale of the asset less the cost of the asset at the time of realisation.

Required:
When is an asset realised? (5 marks)

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  • 5 Marks

PT – Nov2019 – L2 – Q5b – Taxation of Capital Gains

This question asks to explain the taxation rules on asset realisation upon the death of the asset owner.

An individual may realise an asset on the death of another person, by way of transfer of ownership of the asset.

Required:
What are the taxation rules on such transactions?
(5 marks)

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  • 5 Marks

PT – Nov2019 – L2 – Q5a – Taxation of Capital Gains

This question asks to compute the capital gains tax payable on the disposal of a land asset.

Mamavi Dekey (Mamavi) purchased land in Ho in the Volta Region for a cost of GH¢200,000 in 2010. In 2011, she spent GH¢8,000 for grading the land. In March 2019, she spent another GH¢10,000 to reshape the land with the intention to sell it. Mamavi engaged Kobina Ebo, a Valuer, in June 2019 to value the land, and he charged GH¢2,000. In July 2019, she placed an advert at ‘Ho Bankoe FM’ on the sale of the land and paid GH¢1,000. In October 2019, she sold the land through an agent for GH¢300,000 to Kalika, and the agent’s commission was 2% of the sale value. Mamavi also paid GH¢600 for stamp duty and legal permit for conveyance of the land to Kalika.

Required:
Compute any tax payable.
(5 marks)

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  • 5 Marks

PT – May 2020 – L2 – Q5a – Taxation of Capital Gains

Computation of capital gains tax on the sale of a house by Papa Dekey in 2019.

a) Papa Dekey purchased a house in the Madina area of Greater Accra Region in the year 2010 for GH¢400,000. The acquisition expenses incurred by the company amounted to GH¢50,000.

In June 2019, Papa Dekey sold the house for GH¢700,000 while the incidental expenses incurred were as follows:
Description GH¢
Agent’s Commission 10,000
Solicitors Fees 8,000
Advertising 3,000
Accountant’s Fees 10,000
Income Tax on Rent 6,000
Valuation Fees 20,000
Required:
Compute the Capital Gains Tax payable by Papa Dekey.
(5 marks)
Papa Dekey also sold for GH¢1,000,000 in September 2019, Ghana Government Securities
which cost GH¢800,000 in the year 2010. The incidental selling expenses amounted to
GH¢50,000 in respect of Government Securities.

Required:
Compute the Capital Gains Tax payable by Papa Dekey.

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  • 10 Marks

PT – Nov 2024 – L2 – Q3b – Capital Gains Tax and Asset Realization

Tax computation on asset realization and understanding taxable capital assets.

b) Kwamoso LTD sold the following assets to Mr. Badu on 18 May, 2023 for GH¢450,000 to settle a tax liability. Kwamoso LTD is not listed on the Ghana Stock Exchange.

Below are details of the assets:

Name of Asset Cost (GH¢) Net Book Value (GH¢) Market Value (18 May 2023) (GH¢) Market Value (31 Dec 2023) (GH¢)
Truck vehicle 750,000 480,000 320,000 350,000
Generator 60,000 29,400 8,400 8,000
Laptops 48,000 17,200 8,000 7,200

Required:

i) Compute the consideration received in respect of each asset realised.

ii) What constitutes capital assets in the context of capital gains tax in Ghana?

iii) Under what circumstance would there be a loss in the realization of a liability?

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  • 20 Marks

AT – Nov 2016 – L3 – SB – Q3 – Capital Gains Tax

Compute chargeable gains, capital gains tax, and new cost of remaining plant and machinery after a sale.

since 2015. It has been a leading name in the production of a popular brand of household vegetable oil known as “Abop,” which is in high demand.

Given the fact that the company is doing very well, it secured funds from its bankers and bought additional Plant and Machinery in excess of its immediate needs on June 1, 2013, for ₦24,600,000.

The Finance Director convinced the Board to dispose of part of the plant and machinery to boost the company’s working capital. Consequently, on December 31, 2015, the company sold part of the Plant and Machinery for ₦37,925,000 and spent ₦5,125,000 as expenses incidental to the sale. The market value of the remaining Plant and Machinery was ₦15,375,000 as of December 31, 2015.

However, the issue of the tax implications of these transactions is worrisome to the Managing Director, who is visibly disturbed that the Federal Inland Revenue Service (FIRS) might come after the company.

You are required to:
a. State any FOUR Chargeable Assets. (2 Marks)
b. State any FOUR conditions for granting Roll-Over Relief. (8 Marks)
c. Compute the Chargeable Gains on the asset sold. (4 Marks)
d. Compute the Capital Gains Tax. (2 Marks)
e. Compute the new cost of the remaining asset. (4 Marks)

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  • 20 Marks

ATAX – May 2021 – L3 – Q5 – Capital Gains Tax (CGT)

Computation of capital gains tax, reliefs, and tax implications on compensation and reorganization transactions.

DD Nigeria Limited, a private limited liability company, was incorporated in March 2010. The company produces highly successful spring water. The Board of Directors of the company comprises a non-executive Chairman, his wife as the Managing Director, and the Chairman’s childhood friend. For the day-to-day running of the business, the Managing Director is being assisted by the Production Manager, Sales/Marketing Manager, Administrative Officer, and Accounting Officer (a diploma graduate).

The company has a track record of steady growth in profitability and market share. In a bid to cut down its cost of raw materials, particularly polythene, the Board at its recent meeting decided to acquire a polythene company in the neighborhood that is witnessing dwindling fortunes due to insufficient funds to finance its working capital. The Board has also lost confidence in the Accounting Officer as his poor knowledge in tax-related matters was brought to the fore during a recent visit to the company by officials of the Federal Inland Revenue Service.

The Managing Director has approached your firm of tax consultants to help provide professional advice on tax matters in respect of some transactions and activities that occurred in the last one year.

Records of the following transactions were made available to you:

(i) The company purchased plant and machinery at a cost of ₦5,000,000 on April 1, 2019. Plant was later disposed on September 15, 2019, for ₦3,500,000. The undisposed machinery was valued at ₦4,300,000. Incidental expenses incurred on disposal were ₦250,000.

(ii) The company sold an acre of land, which was acquired on May 22, 2018, at a cost of ₦6,750,000 for ₦12,500,000 on October 19, 2018. In the following month, the company bought another land, which was to be used for the purpose of the business, for ₦15,000,000 to replace the one sold. It was, however, subsequently disposed of for ₦18,000,000 in June 2019.

(iii) Part of the industrial building (where the production unit is located) was damaged in October 2020 during a protest by some youths in the area. The company, in November 2020, received ₦2,200,000 as compensation under a policy of insurance. The company has the intention of utilizing the fund for the acquisition of another building.

Required:

As the tax consultants to DD Nigeria Limited, draft a report to the Managing Director of the company explaining and providing computations (where necessary) on the:

a. Capital gains tax liability for the relevant tax year in respect to transaction (i). (5 Marks)
b. Relief available (if any) and tax liability due in respect to transaction (ii). (9 Marks)
c. Tax implications on the compensation under the policy of insurance received on the damaged industrial building. (2 Marks)
d. Treatment of gains arising from business reorganization in line with the provision of Section 49, Finance Act 2019, which amended Section 32, Capital Gains Tax Act Cap C1 LFN 2014. (4 Marks)

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  • 20 Marks

ATAX – Nov 2016 – L3 – Q3 – Capital Gains Tax (CGT)

Computes chargeable gains, capital gains tax, and implications of disposing part of a company’s assets.

Obioma and Sons Limited, a company based in Emene – Enugu, has been producing vegetable oil since 2015. It has been a leading name in the production of a popular brand of household vegetable oil known as “Abop,” which is in high demand.

Given the fact that the company is doing very well, it secured funds from its bankers and bought additional Plant and Machinery in excess of its immediate needs on June 1, 2013 for N24,600,000. The Finance Director convinced the Board to dispose part of the plant and machinery to boost the company’s working capital. Consequently, on December 31, 2015, the company sold part of the Plant and Machinery for N37,925,000 and spent N5,125,000 as expenses incidental to the sale. The market value of the remaining Plant and Machinery was N15,375,000 as at December 31, 2015.

However, the issue of the tax implications of these transactions is worrisome to the Managing Director, who is visibly disturbed that the Federal Inland Revenue Service (FIRS) might come after the company.

As the tax consultant to the company, you are required to:

a) State any FOUR Chargeable Assets. (2 Marks)
b) State any FOUR conditions for granting Roll-Over Relief. (8 Marks)
c) Compute the Chargeable Gains on the asset sold. (4 Marks)
d) Compute the Capital Gains Tax. (2 Marks)
e) Compute the new cost of the remaining asset. (4 Marks)

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  • 15 Marks

FM – Nov 2021 – L3 – Q6 – Portfolio Management

Analyze the risk profile of Bettaluck plc's short-term equity portfolio and assess investment adjustments based on market returns and financial strategy.

Bettaluck plc is experiencing a substantial net cash inflow, which has been temporarily invested in a short-term equity portfolio. This portfolio consists of investments in four Nigerian listed companies. The funds are intended to meet tax obligations, dividend payments, and future capital expenditures in several months.

Portfolio Details:

Required:

a. Based on the data provided, calculate the risk (i.e., Beta) of Bettaluck’s short-term investment portfolio relative to the market. (4 Marks)

b. Recommend whether the composition of Bettaluck’s short-term investment portfolio should be adjusted. Provide reasons for your recommendation, including relevant calculations. (6 Marks)

c. Discuss the factors a financial manager should consider when investing in marketable securities. (5 Marks)

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  • 20 Marks

AT – Nov 2022 – L3 – Q3 – Capital Gains Tax

Calculate capital gains and tax payable on asset disposals, analyze due dates for tax return and payment, and evaluate provisions for compensation.

Microfin Garment Nigeria Plc has been in business for many years as a textile manufacturer. At a recent annual general meeting, shareholders noted a decline in profitability, market share price, and dividends. They observed a particular product line was underperforming due to competition, and a reorganization was agreed upon to be completed within quarter 3 of the new financial year.

The Board of Directors complied with the shareholders’ resolution, deciding to:

  1. Relieve the General Manager (Mr. Chukwu Bala) and Operations Manager (Mr. Ojo Ekaite) of their jobs due to the underperforming segment. They were compensated N12 million and N7.5 million, respectively.
  2. Redeploy production and administrative staff to other branches.
  3. Dispose of qualifying property, plant, and equipment with details as follows:
    Asset Cost (N’000) Tax Written Down Value (N’000) Sales Proceeds (N’000)
    Industrial building 85,000 36,125 123,900
    Plant and machinery 128,500 16,062.5 80,000 and 60,000
    Factory equipment 150,600 37,650 160,000

Additional Notes:

  • Industrial building: Acquired in 2014, with renovation costs of N288,000 and incidental expenses of N150,000 prior to disposal in February 2021. N100.2 million of the proceeds were used in July 2021 to acquire a new building for the head office.
  • Plant and machinery: Acquired in 2017, partially sold in April 2021 for N80 million. The undisposed part had a market value of N65.3 million and was sold in August 2021 for N60 million, with N30,000 in incidental expenses.
  • Factory equipment: Acquired in 2018, sold in September 2021 at a market value of N162.5 million after incurring N250,000 refurbishment costs.

Required:

As the company’s Tax Consultant, you are to submit a report to the Managing Director showing:

a. The capital gains (if any) and the capital gains tax payable on:

  1. Disposal and subsequent acquisition of the industrial building (7 Marks)
  2. Disposal of plant and machinery (6 Marks)
  3. Disposal of factory equipment (3 Marks)

b. State the due dates for filing of self-assessment returns and payment of tax computed on each asset disposed of. (2 Marks)

c. Comment on the provisions of the Finance Act 2020 regarding compensation for loss of office for the two staff members disengaged by the company. (2 Marks)

(Total 20 Marks)

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  • 5 Marks

PT – April 2022 – L2 – Q5b – Taxation of Capital Gains

Explain the circumstances under which an asset is considered realised for taxation purposes.

A gain made by a person from the realisation of an asset is the total amount of consideration received for the sale of the asset less the cost of the asset at the time of realisation.

Required:
When is an asset realised? (5 marks)

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  • 5 Marks

PT – Nov2019 – L2 – Q5b – Taxation of Capital Gains

This question asks to explain the taxation rules on asset realisation upon the death of the asset owner.

An individual may realise an asset on the death of another person, by way of transfer of ownership of the asset.

Required:
What are the taxation rules on such transactions?
(5 marks)

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  • 5 Marks

PT – Nov2019 – L2 – Q5a – Taxation of Capital Gains

This question asks to compute the capital gains tax payable on the disposal of a land asset.

Mamavi Dekey (Mamavi) purchased land in Ho in the Volta Region for a cost of GH¢200,000 in 2010. In 2011, she spent GH¢8,000 for grading the land. In March 2019, she spent another GH¢10,000 to reshape the land with the intention to sell it. Mamavi engaged Kobina Ebo, a Valuer, in June 2019 to value the land, and he charged GH¢2,000. In July 2019, she placed an advert at ‘Ho Bankoe FM’ on the sale of the land and paid GH¢1,000. In October 2019, she sold the land through an agent for GH¢300,000 to Kalika, and the agent’s commission was 2% of the sale value. Mamavi also paid GH¢600 for stamp duty and legal permit for conveyance of the land to Kalika.

Required:
Compute any tax payable.
(5 marks)

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  • 5 Marks

PT – May 2020 – L2 – Q5a – Taxation of Capital Gains

Computation of capital gains tax on the sale of a house by Papa Dekey in 2019.

a) Papa Dekey purchased a house in the Madina area of Greater Accra Region in the year 2010 for GH¢400,000. The acquisition expenses incurred by the company amounted to GH¢50,000.

In June 2019, Papa Dekey sold the house for GH¢700,000 while the incidental expenses incurred were as follows:
Description GH¢
Agent’s Commission 10,000
Solicitors Fees 8,000
Advertising 3,000
Accountant’s Fees 10,000
Income Tax on Rent 6,000
Valuation Fees 20,000
Required:
Compute the Capital Gains Tax payable by Papa Dekey.
(5 marks)
Papa Dekey also sold for GH¢1,000,000 in September 2019, Ghana Government Securities
which cost GH¢800,000 in the year 2010. The incidental selling expenses amounted to
GH¢50,000 in respect of Government Securities.

Required:
Compute the Capital Gains Tax payable by Papa Dekey.

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